Justin has recently updated his Canadian Portfolio Manager (CPM) model ETF portfolios. There are now four CPM portfolio levels of complexity to choose from: Light, Ridiculous, Ludicrous or Plaid. Each of the models’ four levels is more difficult to manage than the last … and arguably, more powerful.
In this four-part podcast series, Justin will discuss each of his four model ETF portfolio levels in painstaking detail, starting with the Light portfolios. We’ll also lighten up the discussion with an ETF Kombat between two bond ETFs: VAB and VGAB. And after reviewing the advantages and disadvantages of the Light portfolios, we’ll answer a voicemail question from Emily in Vancouver, who would like to know how to tax efficiently reduce the risk of VGRO in a taxable account as she approaches retirement.
- How to read the Vanguard and iShares Light model ETF portfolio reports [0:02:25.4]
- Combining two asset allocation ETFs for a custom asset mix [0:03:07.4]
- Introducing Justin’s foreign withholding tax ratio (or FWTR for short) [0:03:50.4]
- 25 years of semi-fictional model ETF performance [0:04:17.4]
- The worst 1-year portfolio returns over the past 25 years, and why you should pay close attention to these before investing [0:04:42.4]
- The pros and cons of keeping your portfolio simple [0:05:04.4]
- ETF Kombat: VAB vs. VGAB [0:08:55.4]
- Equity home bias differences between the Vanguard and iShares asset allocation ETFs [0:14:00.4]
- Foreign equity weighting differences between the Vanguard and iShares asset allocation ETFs [0:016:12.4]
- Fixed income home bias differences between the Vanguard and iShares asset allocation ETFs [0:18:00.4]
- Duration differences between the Vanguard and iShares asset allocation ETFs [0:19:05.4]
- How these equity and fixed income differences would have impacted the historical risk and return of a balanced portfolio over the past 20 years [0:19:29.4]
- Fee differences between the Vanguard and iShares asset allocation ETFs [0:20:11.4]
- A look at the iShares and Vanguard rebalancing strategies for their asset allocation ETFs [0:20:42.4]
- What is a pre-authorized cash contribution (PACC), and how do investors set one up for XBAL or XGRO? [0:22:39.4]
- Voicemail Question: Emily from Vancouver asks Justin how she can reduce the risk of VGRO in a taxable account as she approaches retirement (without realizing big capital gains) [0:24:56.4]
Blog posts/resources discussed in this episode:
Hi Justin,
I have about 60K in TFSA and 40K in RRSP. Both of these accounts have VEQT. Would it make sense to switch to XEQT to save on MER/Fees?
I want to automate as much as possible and may want to rebalance, but not very often yet keep the costs down.
Do you have a suggestions?
Thanks so much!
@Amit – Please feel free to check out my video to help you make a more informed decision (short answer though … it doesn’t really matter):
https://www.youtube.com/watch?v=jehooxCWU1k
Hi Justin,
I follow your blogs and model portfolios and thanks for sharing all this information. I got a question – I am planning to invest in 100% stocks regularly for the next 3-4 years. So it’s VEQT or some of the other combinations in your model portfolios using low cost ETFs. But is there any risk involved in investing in a mutual fund which has almost double the returns? Example – DYNAMIC POWER GLOBAL GROWTH CLASS series F. This has an extremely high MER of 3.81% but they also give me 18.6% 10 year compound returns.
Thanks
Sudhish
@Sudhish: There are always going to be a handful of funds that outperform a passive strategy over shorter periods of time. But this tells us nothing about what to expect going forward.
Hi,
10 year annualized return of XGRO according to iShares fact sheet (as of 2020-09-30) is : 6,77%.
I don’t get why it is 9,30% looking at your light model portfolio.
Same thing with XBAL. You report 7,95% vs 5,81 % according to iShares fact sheet.
Am I looking in the right spot?
Thanks and keep up your great work!
@Thiéry Clinchamps-Lortie – The answer can be found at the top of the XGRO page on the iShares website:
Effective December 11, 2018, the ETF’s name, fundamental investment objective, risk rating, management fee and fee structure changed.
Before this time, the investment objective of CBN (which was the original ticker symbol of XGRO) differed substantially from that of XGRO. My hypothetical returns show what XGRO could have potentially returned if its composition was similar in the past as it is now. The quoted performance pre-2019 on the iShares’ site is CBN’s actual performance, with XGRO’s performance from 2019 onwards.
Hi, your updated hypothetical performance confuse me (september 30, 2020), how VBAL can beat VEQT on 10 years return in a bull market.
@Eric Sylvestre – thanks for the heads up. I’ve uploaded another version (not sure what happened to the first one).
Would it make sense to focus my RRSP on VEQT/VGRO and my TFSA on XEQT/XGRO if I can’t decide between the two? Thanks Justin!
@Mario: I don’t see any issues with this approach :)
Hi Justin,
My portfolio currently consists of a 2017 model portfolio from Dan Bortolloti’s blog. The portfolio consists of ZAG, XAW, and VCN. Is it worth changing my portfolio to what you have recommended now?
If not, when is it worth it for someone to do so? Or should I just “stay the course” and keep saving/investing with this portfolio.
Thanks in advance!
@Alex – I’ve answered this question in a recent blog post:
https://canadianportfoliomanagerblog.com/what-should-you-do-when-we-update-our-cpm-portfolios/
Hi Justin,
Thank you for always providing valuable information on your blog. I have some US funds that I would like to put somewhere for short to medium term instead of having it sit in a bank account not doing anything.
What products or avenues should I be considering?
Thank you,
@George: If you possibly require the U.S. cash in the short-term, the best option is one or more USD investment savings accounts.
This and the other model portfolio seem like excellent options for accumulation portfolios were you haven’t hit retirement yet. However if you are presently retired would these model portfolios be a guide for how to construct a portfolio where the objective is to fund a retirement? In general would you have any suggestions for how to use these model portfolios while in retirement?
@Steve: I discuss the strategies involved in creating a retirement portfolio when I answer Emily’s question at the end of this episode. In addition to your asset allocation ETF, you’ll want 1-2 years of living expenses in cash equivalents (like investment savings accounts), another 5 years of expenses in fixed income investments (like a 1-5 year GIC ladder), and some additional investments in a liquid bond ETF. Over time, you would sell a portion of your asset allocation ETF when it’s up in value and top up these other “buckets”.
As the retirement stage of the game can be more complicated, I would suggest working with a financial planner to determine an investment allocation that is best for your specific situation.
Hi Justin,
What would be a Canadian equivalent a US Treasuries?
I take it that it isn’t an intermediate bond ETF.
Would a GIC fully covered by CDIC be more comparable?
Fixed income is more challenging than equities for me at times.
@Cameron: The equivalent would be Canadian federal Bonds. BMO has a number of Canadian federal bond ETFs with various maturities (short, mid and long-term). ZFM would likely be the closest thing to a Canadian federal intermediate bond ETF.
https://www.bmo.com/gam/ca/advisor/products/etfs?fundUrl=/fundProfile/ZFM#fundUrl=%2FfundProfile%2FZFM
A GIC within the CDIC limits would have similar credit risk to a Canadian federal bond (without the liquidity).
I am enjoying your blogs…however, I am retired and my income comes primarily from my RIFF…I am in cash now. When should I consider getting back into the market…and what ETF(s)?
@Mike: From the sounds of it, you should be working with a financial planner to help you with your cash flow needs (and to determine a suitable asset mix that won’t cause you to panic and move to cash at the first sign of trouble). No one knows where the bottom of this latest market downturn will be, or if we’ve already hit it, so it’s pointless to ask anyone for this type of advice.